What is Freicoin?

Freicoin is a decentralized, distributed,
peer-to-peer
electronic currency designed to address the grievances of the
working class and re-align financial interests of the wealthy
elite with the stability and well-being of the economy as a whole.
Whereas inflationary currencies like the U.S. Dollar or Euro are
controlled by central bankers under rules that intentionally or
not benefit the establishment, Freicoin is completely
decentralized and self-regulating, with a demurrage
fee that ensures its circulation and bearers of the currency
pay this fee automatically to those community members who
contribute work to secure the currency.

Freicoin is an implementation of the accounting concept of a
proof-of-work
block chain used by Satoshi Nakamoto in the
creation of
Bitcoin. It includes a
downloadable client
for Mac OS X, Windows, and Linux, and an electronic
network for transferring funds denominated in Freicoin world-wide.
You can download, review and improve the code of this free
software project on Github.

The Arctic Tern is a unique seabird: the Tern’s flight is so
efficient and stable that the Tern can sleep in the air, and its
navigation so precise that every year it migrates so far it
could fly the circumference of the planet twice, but it always
returns to the same place, the same colony.

One of the main locations of the Tern’s colony is on Iceland,
which is a special place to people that identify with
Occupy: Wall St. and debt-free money.

Our money should behave like the Arctic Tern: circulate the
globe, moving with stability and efficiency, without coercive
control, operating at both the global and local scale.

Demurrage
currencies
like Freicoin align incentives of bankers and financiers with the
priorities of the working class, incentivising the wealthy through
their own self-interest to invest in growth, jobs, and ventures with
long-term thinking. An economy built on a demurrage currency as
the essential foundation will also not fall victim to the same
usurious greed, excess, and short-term thinking that led to the 2008
crisis and financial collapse. Freicoin will continuously stimulate
global growth through reinvestment, and dis-incentivize the type of
actions which led to and furthered the paralysis that caused the
“credit crunch.”

In fact, the insurmountable economic advantages of simply being
wealthy are diminished with Freicoin. In the current system of money,
including the U.S. Dollar, Euro, and other national currencies, money
is and always has been used to store value–money seen from the point
of view of the holders, the wealthy. Freicoin emphasizes instead the
view to that of the producer, the proletariat, the 99%: money as a
means of buying the goods and services necessary to sustain life, and
the capital required to create improved living conditions. These are
contrary purposes: money cannot function properly as, nor should it
ever be both a means of saving and exchange; it cannot be both
accelerator and brake to the economy at the same time. Indeed, this
confusion and conflict over the purpose of money is central to
explaining the financial collapse of 2008 and the extended recession
that followed.

Demurrage forces the entire stock of money to circulate irrespective
of the desires of usurious money-holders to accumulate and store
non-productive assets. Banks, financiers, and large corporations
can no longer hoard money waiting for higher interest rates or a
more favorable investment climate as the demurrage acts as a tax on
stagnant money. Money-holders lose their privileged position at the
negotiating table, and are instead given incentive to seek out
productive investments in new ventures and real capital goods. Under
demurrage money is eternally losing value, so the incentive is to
spend or invest it as soon as possible on the necessities of life or
in longer-term ventures that also provide stimulus for a growing
economy, typically creating real jobs in the process. Demurrage
money becomes a sort of “hot potato” that is passed around as
quickly as possible, in a virtuous cycle of investment and
consumption. No longer are there incentives for financiers to
withhold credit from those in need simply to wait for fairer
economic winds or a better negotiating position.

For the 99% who live paycheck-to-paycheck, the loss from demurrage
is minimal and would be compensated for in wages and pricing. For
those who manage to accumulate some savings and for the 1% who
receive much more income than they reasonably spend, they can either
save real wealth (gold, silver, bitcoins, real estate, artwork and
fine wine, for example) and accept the obvious limitations of wealth
saving (loss, storage, theft, rot, fire, insurance premiums, etc.),
or they can loan it out to borrowers at what ends up being near-zero
basic interest. With sustainable 0%-APR interest loans the order of
the day, business will boom and the economy will grow in a virtuous
cycle.

Freicoin provides a perpetual security subsidy. A somewhat
esoteric technical argument in favor of Freicoin: a tragedy of the
commons type
of market failure when all bitcoins are issued and the block subsidy
for miners ceases has been
considered by
the Bitcoin community. It assumes that the maximum number of
transactions per block is removed or greatly increased, but Freicoin
doesn’t have to fear such an event as there will be a perpetual
reward for miners that comes from compensating for the coins
“destroyed” by the demurrage fees. It is not clear how this
situation could affect Bitcoin, but regardless Freicoin won’t suffer
from this class of problem.

So far in this explanation we have dealt with the unique advantages of
Freicoin specifically, but as a Bitcoin-derived crypto-currency,
Freicoin shares with it many advantages over national currencies. Both
digital currencies provide a predictable, limited and stable monetary
supply and 24/7/365 operation (compared with banking), abolish
centralized control over that money supply, dis-allow chargebacks or
seizure of assets, provide fast transfers with low transaction costs
(Freicoin’s are expected to be even lower than Bitcoin’s), and enable
pseudo-anonymous use for private transactions.

How does it work?
—————————

Freicoin is an implementation of Bitcoin which loses approximately
5% of its value per year. The destroyed money simply vanishes,
being permanently taken out of circulation. However to keep prices
stable an equal-valued batch of freshly minted coins is created and
distributed to the diligent accountants (the “miners”) who maintain
at their own cost the global ledger of electronic transactions. The
economics of mining are such that most of this is spent on the real
capital required to secure the network, thus forcing the newly
minted coins to flow back into the economy. The subsidized mining
incentive drives participation, making it very difficult, both
technologically and economically, to manipulate Freicoin as has been
done with the legacy systems of money in use today.

What is Bitcoin?

Bitcoin is a decentralized,
peer-to-peer internet currency secured by strong cryptography and an
open-source development process, and the foundational technology
underlying Freicoin. Bitcoin enables anyone in the world to send
funds to anyone else with minimal, fair fees on both consumers and
merchants. Bitcoin is democratic in that everyone who uses the
currency takes part in securing it (making sure the rules are
followed and there is no fraud) by running a software program on
their computers; they are proportionally compensated for this effort
by collecting transaction fees, and in the case of Freicoin,
demurrage. For more information about the benefits that come from
basing Freicoin on Bitcoin technology, see the Bitcoin advocacy site
We Use Coins.

Why does it work?
—————————

Examples of
demurrage-money
can be found throughout history, all the way back into antiquity. For
a historical treatment of the subject, we suggest reading David
Graeber’s anthropological work Debt: The First 5,000
Years.

Demurrage-money was re-introduced to the modern era in the early
20th century by the theoretical economist, social activist,
and anarchist Silvio
Gesell. Gesell discovered
that interest rates aren’t based solely on the inflation rate and the
risk of the loan. Called the liquidity premium by economists, the
difference is due to money being nonperishable, scarce, and
universally accepted, so rational actors tend to demand extra interest
to make up for the opportunity cost of lending money.

Classical economic theory tells us that all economic
profits tend to zero in
perfect
competition. So
capital yields, the “selling price” of investments, should tend to
zero as different production goods of the same type compete with each
other. However basic interest impedes yields from dropping to zero,
causing an economic rent
that is trouble for not only money holders and lenders but for
everyone who seeks to acquire or invest wealth. Gesell showed that
this usurious premium, the economic rent of basic interest, is the
root cause of the non-utilization of resources that leads to
dysfunctional institutions, the stratification of society, and the
inevitability of the boom/bust business cycle.

The goal of a demurrage currency is to suppress basic interest to
zero, completely removing that economic distortion. Gesell’s proposed
solution
included Freigeld (“free-money”), a paper demurrage currency that
suppressed this basic interest by making money perishable, like a
consumer good. The basic idea has been tested several
times
with positive results.

Anything that is not perishable becomes much more valuable, as a
consequence of having a perishable money supply. As you know, the
world is in an economic depression or recession. Even with this
condition, the risk-free interest rate is 3%! Even during the Great
Depression these rates only decreased to two percent. When the
economy gets hot these rates reach as high as 15%. Thus, consumable
products are perpetually overvalued, and sustainable products are
always undervalued.

Some Austrian-school economists claim that the basic interest can be
explained by what they call “time preference.” They maintain that
people always prefer to have things in the present over having them in
the future. That is, short-term thinking is part of human nature.
(This would only be true for items like money, for example, as you
wouldn’t necessarily prefer 1000 fresh apples today over 1 fresh apple
a day for the next 1000 days, even if that holds true for U.S.
dollars.)

According to Bernard
Lietaer, this short
term thinking is not inherent to humans but caused by some existing
monetary systems. He explains this with a tree
metaphor.
Say you plant a tree today and that tree will produce $100 USD in
lumber after 10 years, what is that future $100 worth today? With 5%
interest rates, $100 in 10 years are equivalent to $61.39 today.
That’s why we value more things in the present, although this hasn’t
always been the case. The following table completes his example:

High interest gives more incentive to destroy than create.

Risk-Free Rate

Est. Value in 10 years

Est. Value in 100 years

Actual Value

$100

$1000

+5% (interest)

$61.39

$7.60

-5% (interest)

$167.02

$168,903.82

As you can see, positive interest rates cause us to value short-term
returns, and if there were negative interest rates the financial
market would make us value things in the future more than in the
present. With 0% interest rates we could value things in the future as
much as we value them in the present: money wouldn’t have any effect
on our “time preference,” which may change with the current
circumstances of each person and his or her own priorities.

With positive interest rates it pays to be a vulture capitalist.
Forests are clear-cut rather than sustainably harvested. Small
businesses with real products are purchased, their machines are sold
off to competitors, and the company is loaded down with impossible
debts and left to die. Centuries old buildings are demolished for
parking lots. Essentially high interest rates fund the destruction of
capital. Freicoin enables a sustainable society by safely lowering
basic interest rates to zero without price inflation by means of
demurrage.

Demurrage currency can result in stable prices. According to the
quantitive monetary
theory, prices
depend on money velocity. Demurrage encourages circulation and
springs a higher and more stable velocity. So prices should be more
stable for a currency with demurrage. The properties of Freicoin
have been designed such that we expect overall price levels to
remain mostly stable over time.

Is Freicoin in competition with Bitcoin?
—————————————-

Yes and no, but mostly no.

We are in favor of a free monetary market. We believe that there should be a free monetary market and monetary diversity. In this respect, yes, Freicoin and Bitcoin will compete with each other for users as currencies. But that doesn’t mean that you can’t use both for different reasons or that one of them has to necessarily disappear. In any case, that’s for you and the marketplace of ideas to decide, not us, the bitcoin community or any coercive agency. Silvio Gesell wrote that money was a natural monopoly and thus the state should operate it, but we disagree with him on that point. Thousands of complementary currencies in circulation today are a living proof that this is not the case.

The Austrian school of
economics underlies
Bitcoin’s design. Most Austrian economists don’t support a monetary
monopoly, even if such a money system were based on gold, which
Bitcoin is designed to resemble.

Bitcoin and Freicoin support each other as collaborative free
software. Free
software is software
that respects your freedom as a user and with a collaborative
development model. Freicoin is a fork of Bitcoin because we don’t
want to compete with it technically. The technical improvements we
develop will be submitted “upstream” to the Bitcoin developers, and
we will of course draw upon features and bug fixes applied to
Bitcoin. Our software development relationship with the bitcoin
community is based on collaboration, not competition.

We don’t compete with bitcoin for miners either. Merged mining
allows network operators to secure both currencies simultaneously.
The merged mining technology first
developed for Namecoin allows miners to use their proof of work in
several block chain networks simultaneously. We’re currently
evaluating the tradeoff between security and the convenience of having
merged mining included early-on, since some new chains have been
attacked by bitcoin pools (even without the users of that pool knowing
it) and merged mining makes new currencies vulnerable to such attacks.
Even if Freicoin isn’t merged-mine capable at launch, it will be in
the near future. The result is more security for both Freicoin and
Bitcoin.

Finally: Freicoin, an electronic economy that is fair, and where the
expectations are explicit and clear to everyone. Freicoin may be for
you, but it’s not for everyone. We sincerely hope that you will
download Freicoin today, give it a try, and find out
for yourself.